Sources have told The Australian Financial Review that the Defence Department has told the government that unless it starts spending extra money now by bringing forward projects and acquisitions, it will be unable to spend all the extra money required to hit the 2 per cent target by 2023-24.

But bringing forward spending would disrupt the government's mid-term fiscal strategy and push back a return to surplus which the May budget estimated would occur in about 2021.

To hit the 2 per cent target, the government has to spend an extra $14 billion to $16 billion on defence by 2023-24.

The government needs to clear the obstacle before it releases its defence White Paper.

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Separately, it is understood that the paper will confirm the government, over the next several decades, intends to build only eight new submarines, down from the original proposal of 12. It will build up to nine frigates, most likely in Adelaide, in a bid to assuage anger caused by the decision to source the submarines abroad.

There would be one shipbuilder only, based in Adelaide, meaning the futures of facilities in Newcastle and Melbourne would be uncertain.

The White Paper will also flag the purchase of up to 12 offshore patrol vessels, the purchase of two more C-17 transport aircraft and three extra Chinook helicopters.

The white paper is expected to contain a 10-year budget trajectory for defence spending which will include the current four-year budget forward estimates period and the years beyond.

Sources said that at a meeting of the National Security Committee of Cabinet on June 30, Defence presented three options, only one of which it believed was feasible but that risked delaying further any return to surplus.

The hard basket

The first option says that because no provision to accommodate the spending boost is included in the next four years, the extra $14 billion would have to be spent between 2019-20 and 2023-24.

This would involve a 6.1 per cent increase in defence spending in 2019-20 which would jump to 9.3 per cent in the years 2022-23 and 2023-24. This translates to $9 billion extra being spent in the final two years. Defence has warned the government that this option involves "a high level of risk" because there was too little time to find projects and equipment to buy. A source said this was code for "impossible".

The second option presented by defence would be to spread the extra spending more evenly between 2019-20 and 2023-14. This would involve an increase of 6.1 per cent rising to 7.4 per cent in the final year. Defence has warned this would also be difficult to do.

The third option, according to the source, suggests the government starts spending more money on defence right away so it can spend all the $14 billion by 2023-24. However, it is believed the Departments of Treasury and Finance have misgivings because of its impact on the return to surplus.

This year's budget forecast a return to balance in 2020 and surplus a year later.

Defence has recommended that projects could be brought forward so the government could start spending more money now. Suggestions include relocating a RAAF base in Darwin, bringing forward the purchase of a third supply ship from South Korea, fast-tracking the replacement of armoured vehicles and bringing forward and expanding an order for new surveillance aircraft.

Currently, the government is committed to buying eight with an option for four more, Defence suggests taking the option and purchasing another three as well.